Startup Funding Club SEIS Fund
For investors happy with the high risks of SEIS, the Startup Funding Club SEIS Fund is one of the strongest offers available, in our view.
Originally set up as an angel syndicate in 2012, Startup Funding Club (SFC Capital) is now a leading early-stage investor. To date, it has invested in over 280 companies, and has become the most active Seed investor in the UK and the third most active in Europe.
Funds from previous years have now started to generate exits and return cash to investors. Cognism, a machine-learning driven marketing platform, is an example. The SEIS fund partially exited its position, generating a 43.2x realised return, before tax relief. Overall, the fund has completed seven full or partial exits through a mixture of trade sales, share buybacks and secondary buyouts to date. Past performance is not a guide to the future.
That said, most of the businesses are very early stage. Little or no revenue makes them very high-risk investments, softened somewhat by the tax relief.
Investors should expect a portfolio of at least 10 investee companies across a range of sectors, including digital technology, life sciences and consumer goods.
Capital is expected to be deployed by January 2023 for applications and cleared funds received by 30 September 2022 (not guaranteed).
Read important documents and then apply
- SEIS offer exclusive to Wealth Club for non-advised investors
- Among Europe’s most active angel & seed investors
- Evergreen fund investing in early-stage disruptors only
- Target return of £3 per £1 invested (not guaranteed)
- Targets very young portfolio companies in a range of sectors, including digital technology, life sciences and consumer goods
- Minimum 10 portfolio companies expected – although the fund targets an average of 20
- Minimum investment £10,000 – you can apply online
Startup Funding Club (now SFC Capital, “SFC”) is as an angel investment club focused on very early-stage businesses. It identifies the opportunities for investment and provides ongoing support and expertise to the portfolio companies in which it invests.
One notable early success, which helped SFC get where it is today, is Onfido, an AI-based identity verification business. Impressed by the management team, SFC invested before the business even had a product; indeed, Onfido was incubated at SFC’s offices. The investment was SEIS qualifying but was made prior to the SEIS fund being set up. Onfido was identified as one of the fastest-growing businesses in the UK in 2019 and 2020 by The Sunday Times Sage Tech Track 100. Onfido has raised capital from investors such as Softbank, Salesforce Ventures, and Microsoft. In a secondary sale in 2020, SFC’s initial investors had the option to exit their investment for a 100x return on capital, not including SEIS relief. Note that past performance is not a guide to the future. In 2020 Onfido raised a further $100 million from TPG, an early backer of Airbnb and Uber, and is now reportedly considering a US listing following strong growth in the US.
In 2013, soon after investing in Onfido, SFC launched its first SEIS fund, one of the UK’s first. Since then, SFC has gone on to become a prolific seed investor. A 2021 report from PitchBook Data named it the third most active Angel & Seed investor in Europe, alongside names such as Enterprise Ireland, Accel, and Index Ventures.
The SFC angel network is a group of over 500 active angel investors from various backgrounds, many with direct experience in building and investing in successful young companies. They co-invest alongside the fund and bring additional funding and experience to the portfolio. To date, SFC has facilitated investments in over 280 early-stage companies across a broad range of sectors and won numerous industry awards for angel and seed investing. In addition to the angel network, SFC has forged ties with some of the country’s leading universities and startup accelerators to broaden its deal flow.
The SFC team is headed up by Stephen Page, CEO. Stephen has founded and exited a number of software businesses and is supported by Chief Investment Officer Joseph Zipfel (featured in the video) whose background is in investment banking and corporate finance. The wider team and board of directors of SFC have backgrounds in investment banking, software, corporate finance, and entrepreneurship. In total the team consists of 16 individuals, most of whom are actively involved with investment decisions.
Startup Funding Club (now SFC Capital Ltd) is the investment adviser to the fund, which is managed by Kin Capital Partners LLP. SFC Capital Ltd is an appointed representative of SFC Capital Partners Ltd.
New: Meet the manager – video interview with CIO Joseph Zipfel:
The combination of world-leading universities, some of the world’s largest businesses, specialist tech capabilities, great infrastructure, a pre-eminent financial centre, and supportive policies for SMEs make the UK a great place for startups.
The Startup Funding Club SEIS Fund aims to tap into this area of growth. It invests in a portfolio of very early-stage companies with innovative products and disruptive technologies which have the potential to generate successful exits at a significant (tax-free) multiple of the cash invested. The team targets a return of 3x, not guaranteed.
Companies will typically be less than two years old at the point of investment, with an initial version of their product or service. They may have signs of early commercial traction but usually little or no revenue. At this point, valuations tend to be lower and the risks very high.
SFC seeks to acquire meaningful strategic shareholdings in each company, so as to be able to influence the management of these ventures and put the right expertise, support and governance structure in place from the beginning. This includes attending board meetings (either as observer or director) and establishing connections within the SFC Alumni and SFC Partner Network to provide advice and services to portfolio companies.
The Startup Funding Club SEIS Fund targets a return of £3 per £1 invested after five to eight years, excluding any SEIS tax reliefs. Returns and timeframes are not guaranteed.
SFC aims to exit investee companies within five to eight years, not guaranteed. So far, it has completed seven full or partial exits through a mixture of trade sales, share buybacks and secondary buyouts. In addition, SFC may also consider an IPO if appropriate. Please note, exit options and timeframes are not guaranteed and past performance is not a guide to the future.
Investors in the current iteration of the fund can expect exposure to a minimum portfolio of 10 companies, however, tranches could be significantly larger – with the fund targeting an average of 20 companies per investor. As a generalist fund, investee companies will operate across various sectors including digital technology, life sciences and consumer goods. SFC seeks to invest subscriptions over a twelve-month period following a closing date.
Below are portfolio company examples from previous iterations of the SEIS fund. They are outlined to give a flavour of the types of companies SFC might invest in, but may not be part of a new investor's portfolio. SEIS funds tend to be managed on a discretionary basis so each individual portfolio is likely to be different.
Findaa is an internet of things (IoT) business that focuses on locating, monitoring and tracking assets throughout global supply chains. The technology can also monitor the conditions in which they are stored, helping manage risks and reduce waste.
The company is enjoying early interest in the healthcare space, following participation in the Connected Places Catapult. The healthcare industry faces particular problems with overordering, loss and theft of medical items – costing the UK alone more than £7.5 billion a year. However, the company believes it could also find applications in consumer goods and cold chain products.
Findaa was founded in 2019 by IoT engineer Leo Meng and experienced entrepreneur Simon Rowell. Startup Funding Club invested £145,000 in the business, across both its SEIS and Angel EIS Funds in March 2021, in a deal that valued the business at £1.96 million.
A spinout from University College London, Novai is a biotechnology company aiming to improve the detection and treatment of chronic eye diseases.
In chronic diseases such as glaucoma, indicators of the disease progression are often only detected after irreversible damage has already occurred.
Novai’s proprietary technology (DARC) – which combines a patented biomarker with AI – allows detecting disease activity at a cellular level using only standard imaging equipment. This could help pharmaceutical companies de-risk and accelerate clinical development of glaucoma and age-related macular degeneration (AMD) treatments, providing significant cost and time savings.
DARC was developed over 10 years of research by Professor Francesca Cordeiro and received more than £4 million in funding from the Wellcome Trust and UCL. SFC led a £500,000 seed round in 2020, of which £150,000 was SEIS qualifying. The funding was to be used to start the commercialisation phase of the technology after securing contracts with several large pharmaceutical companies in its first trading year. The business has since raised two further follow-on funding rounds in early 2021 and October 2021.
Cognism – example of previous exit
Cognism is one of the UK’s fastest-growing technology companies. It has developed software that uses machine learning to help sales and business development professionals find prospects.
The business was founded in 2015 by CEO James Isilay and CTO Stjepan Buljat. SFC took part in the first funding round in 2017 through its SEIS fund and followed on in 2018 through its 2017/18 EIS Fund.
At the time of SFC’s first investment, Cognism had recurring revenues of £4,500. In 2020, it announced annual recurring revenues were over $11 million and featured in the LinkedIn Top Startups list for the third year in a row.
In January 2022, Cognism announced it raised $87.5 million in a deal led by American investment group Viking Global Investors. The deal valued the business at more than £200 million, and SFC took the opportunity to sell a little under half its stake in the business for a 43.2x gain. Past performance is not a guide to the future.
VN Carbon Capture – example of previous failure
As is to be expected with very young businesses, SEIS companies can and do fail.
One failure in the SFC previous portfolio is VN Carbon Capture (Gas) Ltd which received investment in March 2014.
The company was formed to pursue the commercialisation of a discovery by researchers at the University of Newcastle allowing a cost-effective capture and recycling of CO2 using nickel nanoparticles which could translate into significant commercial potential. The investment was made on the back of a promising feasibility study and funds were used to run further laboratory tests and simulations with a view to develop the research into industrial technology. Unfortunately, the research showed the technology was not economically viable and did not get commercial traction despite receiving interest from the scientific community, the press and industrial companies. The company dissolved in 2017.
Early-stage investments can take time to mature – SFC expects investment holding periods of up to eight years. Now, around eight years from SFC's first SEIS fund, there appear to be some encouraging signs. Unrealised returns are attractive in our view and several investments have now achieved profitable exits, enabling the fund to start returning some capital to investors.
Cognism (above) and internet of things specialist Vortex IoT, are two notable successes, generating returns of 43.2x and 8.4x respectively and boosting realised returns from the 2016/17 and 2017/18 tranches.
On average, investments made more than five years ago (2013/14 to 2015/16) have generated £168.52 in unrealised returns (before tax relief), and £5.65 in realised returns, for every £100 invested. Note: past performance is not a guide to the future. The chart below shows the average performance of the total subscribed into the funds each tax year, based on valuations as at 31 December 2021, expressed on a £100 invested basis. Please note, individual investor portfolios’ performance will deviate from the average.
Performance per £100 invested in each tax year
Source: SFC, as at 31 December 2021. Figures are net of all fees. Past performance is no guide to future performance. These figures do not include any realised returns which would be available through loss relief. In the above examples, initial tax relief of up to 50% could also apply. Remember tax rules can change and tax benefits depend on circumstances.
Risks – important
This, like all investments available through Wealth Club, is only for experienced investors happy to make their own investment decisions without advice.
SEIS investments are high-risk so should only form part of a balanced portfolio and you should not invest money you cannot afford to lose. They also tend to be illiquid and hard to sell and value. Before you invest, please carefully read the Risks and Commitments and the offer documents to ensure you fully understand the risks.
Tax rules can change and benefits depend on circumstances.
This SEIS fund invests in early-stage businesses which are more likely to fail than larger ones. So you should expect a number of failures in the portfolio, or even be prepared for all companies to fail.
In a portfolio of ten companies, one might do very well (although there are no guarantees), several could fail and the others might just tick along.
Earlier-stage companies usually take longer to mature. Further funding rounds will be common so there is risk of dilution. Earlier-stage companies usually take longer to mature.
Exits could take longer than the three-year minimum hold period. Equally, an early exit could affect SEIS tax relief.
A summary of the main charges and savings is shown below. Some of these will be payable by the investor, whilst others by the investee companies. The investment may have additional charges and expenses: please see the provider documents, including the Key Information Document, for more details.
|Full initial charge||2.5%|
|Wealth Club initial saving||—|
|Net initial charge through Wealth Club||2.5%||Annual management charge||—|
|Performance fee||30%||Investee company charges|
More detail on the charges
Timing of the offer
SFC is targeting a deployment of January 2023 for applications and cleared funds received by the 30 September 2022, however timescales are not guaranteed.
There are several reasons why SFC stands out as an SEIS fund offer, in our view.
SFC benefits from strong ties with leading universities and accelerator programmes, when combined with its own angel network, give the investment team access to a strong pipeline of deals.
To support this deal flow, the business has also developed a highly efficient investment process that allows it to complete hundreds of investments per year, making SFC one of Europe’s leading startup investors (by number of investments made), and a destination for founders seeking capital.
This is relevant to investors considering SEIS for two reasons.
Firstly, SFC’s deal flow means it can build a diversified portfolio. Diversification is important and should be welcome, especially considering the fund invests at a very early stage, when risks are highest. The additional SEIS3 paperwork involved is simplified somewhat by a tax summary that SFC provide.
Secondly, having a healthy pipeline of new deals means the fund should be able to deploy investors’ money in a timely manner, making tax planning easier. Indeed, SFC has not missed a deadline for investing subscriptions in seven years – although there is no guarantee for the timing of future deployments.
Investments made within SEIS funds from earlier tax years are starting to bear fruit. The recent partial exit from Cognism (above) and full exit from Vortex IoT, have delivered realised gains to investors in the 2016/17 and 2017/18 tranches, while earlier funds are also showing strong paper gains. Past performance is not a guide to the future.
For experienced investors keen to get exposure to the bright new businesses of tomorrow, who are happy with the risks of SEIS investment, we think this could be one to consider.
Read important documents and then apply
Wealth Club aims to make it easier for experienced investors to find information on – and apply for – tax-efficient investments. You should base your investment decision on the provider's documents and ensure you have read and fully understand them before investing. This review is a marketing communication. It is not advice or a personal or research recommendation to buy the investment mentioned. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.
- Target return
- Funds raised / sought
- Minimum investment
- 30 Sept 2022 for 2022/23 allotment